© GRIFFITH COLLEGE PROFESSIONAL LAW SCHOOL Discharge of A Contract.

© GRIFFITH COLLEGE PROFESSIONAL LAW SCHOOL

Discharge of A Contract


Exam Relevance


Discharge?

• To be discharged means that a contract is, completed and no longer binding

• Practical consequence is that it is sometimes important to know when a contract or one’s side of a contract has been completed.


Discharge by Performance - Summary• We are really talking about when a party can be deemed

to have completed his obligations under the contract such he is discharged from future obligations. Also, in practical terms, it is usually at this point he can claim the benefit for which he was promised under the contract.

• Two special circumstances:– Where courts view contact as entire or “lump” – need entire

performance of all obligations save those which are de minimus – Where courts have taken view that contract is divisible, such that

you are paid on Quantum Meruit for what you have done to date.

• Really talking about what it means to perform ones obligations under a contract such that one is “discharged” from obligations and can get the promised benefit


Entire Contracts

• The “all or nothing” rule

• Unless you perform your side exactly, you have not performed and thus you can’t claim your benefit.


Cutter v Powell (1795)

• Sailor was promised 30 guineas on completion of journey – died en route

• Widow sought payment on QM – proportionate to the amount he had completed

• Ct held that Ct was “all or nothing” – ob to pay only arose when performance complete

• One factor – the 30 guineas was quite high – took the view that this was essentially being paid by way of the price for full performance….


When is a contract entire?

• Question of fact for each case – Nash & Co v Hartland (1840)

• Vigers v Cook– UT sued for money for carrying out funeral– Coffin he used to mask smell burst – body could not

be taken into church– UT sought $$$ on QM – held was not entitled –

contract to provide for a funeral was an entire contract not capable of division into sub-contracts (i.e. the coffin, the embalming etc).


Advice

• Look at nature of contract– Did the parties intend it to be entire?– Was it a “all in one” – i.e. whereas constituting

many services, did one party “sell” himself as offering it all?

– Was there a premium offered for complete performance?


Building Contracts

• View – where one is to be paid in lump sum, means that you have to complete entirely before you get it

• Collem v Marum (1871) – builder could not part perform and seek part payment – “employer is not bound to pay for half or a quarter of a house”


Sumpter v Hodges (1898)

• Lump sum building contract is an entire contract – i.e. payment depends on completion

• Now, if one adopts a half house (i.e. accepts it) where one has a choice in the matter – court may infer the existence of a new contract (i.e. to pay for the half house)

• Choice is key here…no choice, no inferred contract


• This may all be a bit harsh

• Mitigated by doctrine of substantial compliance


Hoenig v Isaacs (1952)

• Builder redecorates flat for £750 but didn’t put in a bookcase as he was supposed to

• Cost of remedying was £55• Held that defect was not substantial in

terms of overall contract – entitled to £695• Denning – pointed out that substantial

compliance would usually be found unless breach went to root of contract!!!!


Bolton v Mahadeva (1972)

• Install central heating - £560 – defective installation

• Cost £130 to fix

• The whole system didn’t work – held to be a substantial defect – court looked at percentage cost of repair – held substantial performance had not taken place – so not entitled to any payment


Kincora Builders v Cronin (1973)

• Builder did not insulate ceiling of house

• No substantial performance of overall job

• Overall costs £6000

• Insulation probably around £350 and noted as “very small” in proportion by Pringle J


Discharge by Agreement

• 1. Termination through Accord and Satisfaction– We agree to discharge (need consideration

etc)– Probably best to put it in writing– Usually fine if executory, but really need

watch consideration if one side has already performed


• 2. Variation– Vary the contract to turn it into something else– Consideration required– NZ – Antons Trawling v Smith (2003) –

variations don’t need consideration unless specific public policy reasons say so

– Formalities would apply where relevant

• 3. Waiver– Waive one term or a contractual right– Does not have to comply with statute– Can waive by conduct


Discharge by Breach


• Breach does not terminate a contract

• May allow one party (wronged party) to bring contract to an end

• We know about warranties – breach only entitle to damages


When is something a warranty?

• Where law says so

• Where parties say so

• Some law in relating to certain types of terms / provisions


• So, can end a contract where it has been breached where the breach is a condition

• You can also end a contract where either– Fundamental breach occurs– Breach of the fundamental term if breach is

fundamental (basically Hong Kong Firs)– E.g. – Dundalk Shopping Centre v Roof Spray

• D treated roof of P’s premises so badly it leaked• Such a breach, P could treat K at an end (ct noted likelihood

of recurrence here)


Revision

• Discharge by Breach• I.e. certain breaches allow one side to treat

contract as at end thus discharging their obligations

• E.g. hirer of ship has 5 years of payments to make, but the ship after 1 year proves to be of terrible quality. He may want to treat the contract as ended (discharged) and thus not be bound to pay the rest (subject to his right to recover in damages)


Three ways

• Breach of condition (where we know it’s a condition)

• Breach of fundamental term

• Fundamental breach


Now one more way

• Repudiatory breach

• Where the other party has decided not to perform its obligations under the contract.

• Where one party has made a clear decision not to perform its obligations, it cannot be fair to expect the other party to perform its obligations. In these circumstances, therefore, the innocent party can treat the contract as having come to an end.


Athlone RDC v Campbell & Son

• P carrying out excavation of a well – dispute arose, but P said they would carry on

• D said he didn’t want that• P said this was a breach of K (i.e. the D has no

intention of paying us)• P could rely on this anticipatory repudiation of

the contract to bring it to an end– Practical consequence – could sue for damages

without having to perform the contract itself!


Two rules for Repud Breach to Occur

• 1. Rep Breach Must be Serious– Decro Wall International v Practitioners in Marketing

• Consistent and deliberate late payment no sufficiently serious when delay was ultimately minor

• 2. Breach must be deliberate– Nottingham BS v Eurodynamics

• Refused to pay disputed invoices – not a breach since dispute was bona fide

– Woodar Investment v Wimpey Construction• Where one party believes in good faith that they are abiding by

contract, but, in fact, breaching or announcing intention to breach it, no repud breach will be made out.

– Continental Oil v Moynihan – same principle as Woodar


• Anticipating a Repudiation

• Situation A– The breach actually occurs

• Situation B– John tells Mick he has no intention of paying

him when Mick finishes the work he is doing – Mick therefore anticipates the breach – can repudiate the contract on that basis and sue for Damages


But he doesn’t have to

• If you anticipate a breach by the other side – i.e. they declare intention to breach – you can accept the declared intention, bring contract to an end, and sue for damages

• Or you can ignore it, and wait and see

• But you don’t have to wait and see


Hochester v De La Tour

• P hired as courier in April, was to start in June• May D said he would not be required in June• P sued, D said no breach had yet taken place• Ct held was UnR to expect P to wait and see if

the intention would actually be carried out – could accept the breach as happening at the time it was expressed


Leeson v North British Oil

• D contracted to supply parafin oil to P

• Indicated could not do it because of a strike

• P sued

• Ct held he was entitled to sue – i.e. intention of breach had been communicated and he could then treat the breach as complete


Discharge by Frustration


• Frustration is about acts that occur after contract has been formed. This is crucial.

• If it operates, it operates such that contract ceases to have effect from date of frustration onwards…no past effect

• Teaching method – do the cases, but study it in a thematic manner…


Introduction - Definition

• External factors which so radically alter the basic assumptions on which a contract is founded such that its performance is impossible of futile – Friel (1995)

• Also a good definition in Neville v Guardian Bros and in Zuphen case (to follow)


Old View

• Common law once very opposed

• Paradine v Jane (1647)– Tenants occupation interrupted by lands

requisitioned by army during English Civil War– Still liable to pay his rent – court said tenant

should have attempted to guard against this in his lease – laissez faire


Gamble v Accident Assurance

• Insurance policy said insured need notify insurance company of accident in 7 days

• Died by drowning – no notification• Company did not have to pay – said he should

have made arrangements in the policy to cover such situations.

• Not a Fr case – but about laissez faire attitude underlying hostility to frustration


Taylor v Caldwell

• Shift begins – music hall burns down shortly before P to take lease

• P sued for breach of K• Failed – held K subject to implied term that K

would be discharged if it became impossible to perform.

• Implied term theory is not really the basis of it now. (but bear this in mind for recent Irish Zuphen case)


Modern Case Law

Thematic is Best (Suits Problem Questions)


What Constitutes Frustration?

• Neville: “significantly chang[ing] the nature of the outstanding contractual rights and obligations from what the parties could reasonably have contemplated at the time of the contract's execution that it would be unjust to hold them to its stipulations in the new circumstances”

• Zuphen: “when something occurs after the formation of the contract which renders it impossible to fulfil the contract or transforms the obligation to perform into a radically different obligation from that undertaken at the moment of entry into the contract.”


• General reluctance to apply liberally – McGuill v Aer Lingus (1983) saw McWilliam J talk about “strictly scrutinising” claims of frustration


• Advice: Fr not made out simply where unforseen consequences arise making contract less (or not) profitable– Tsakirooglou & Co v Noble and Thorl

• Suez canal closed – made it impossible to ship cargo at original costs – needed now go around the Cape of Good Hope

• Not Fr – extra costs was not enough – would have needed to show that the Canal closure meant something very special for cargo – i.e. it was perishable etc.


Davis Contractors v Foreham UDC

• Building Contract for 8 months – 94K

• Took 2 years and costs 114K

• Labour probs and materials shortages were the cause

• HL held no frustration – all that occurred were that ordinary commercial risks materialised.


Congimex v Tradax

• Goods to be shipped to country which stopped issuing import licences

• Donaldson MR – no frustration– Frustrated expectations and intentions of one party to

a contract do not necessarily or indeed often lead to the frustration of that contract

• (that case was about how certain goods could not be purchased in Portugal without certain licences – those licences then stopped being issued so purchase at Lisbon was not possible.)


• What happens where contract can still be performed, but reason for it has been lost?

• Frustration of purpose?– Krell v Henry

• R rented a flat to watch coronation procession of Edward VII – was cancelled

• Could still rent the flat, but reason for it was gone• Vaughan Williams LJ – CA held that court had to

look at substance of what contract was for – i.e. to view the procession – once that was gone, so was the substance of the contract – frustrated as it could not be achieved


Herne Bay Steam Boat v Hutton

• Chartered boat to watch naval review and sail around it – review cancelled, fleet remained

• Held that the K was not simply to watch the review, but to sail around the fleet – hence not Fr


• Changes in the law may make a transaction illegal– Reilly v R

• Said to be an “elementary” proposition that this Fr’s a contract

• Also applies where foreign law changes– Rally Bros v Compania Naviera Soto Y Anzar

• Based on implied term theory – term implied into K that the thing to be done in other country is not a violation of the law


One major Rule

• Must be substantial and entire F – not simply a set back– National Carriers v Palapina

• Lease of 10 years for warehouse• Street giving access closed for 2 years• Not sufficiently substantial in terms of K to be a Fr event

– Similar holding in Congimex• “the fact that some minor aspect of performance became

impossible did not necessarily frustrate the contract”


Whether Fr Events Are Foreseen by Parties?

• Has been said (see para 8-34) that if parties foresee Fr event, it cannot operate – see McGuill v Aer Lingus per McWilliam J – must be an unexpected event– Claimed in that case that strike of employees

was a Fr event – rejected because Ct held that the D were aware of the possibility of a strike

– Logic? What do you think?


Just a note – McWilliam J

• “If one party anticipated or should have anticipated the possibility of the event which is alleged to cause the frustration and did not incorporated a clause in the contract to deal with it, he should not be permitted to rely on the happening of the event as causing frustration. “


• Zuphen v Kelly Technical Services– P recruited by agency to work on a contract with Eircom – that

was discontinued– Agency claims K’s with workers now frustrated– Murphy J rejected – held could have made their contracts

conditional on the contract, but they didn’t– Needed “such a change in the significance of the obligation that

the thing undertaken would, if performed, be a different thing than that contracted for”

– Also – note that D had continued to try and get work for P – so contract still capable of being performed?

– Note also• The general agreement of the Defendant companies with Eircom as

to work being "allocated as the need arises" points to the possibility of such work not arising. It was certainly not so unexpected as to be beyond the contemplation of the parties, even as a possibility.


But…

• The Eugenia– Risk that Suez was to be closed was obvious

to all – parties actually discussed it here– When it was closed, Court still held that it

could frustrate in this case– Denning MR – para 8-36 – held it simply not

the case that the event must be unforeseen


Better viewed as question of degree?

• The more foreseeable it is, the less likely a claim in Fr will be

• Neville and Sons v Guardian Builders - complex


SUPREME COURT – Principles of Frustration

• Frustration of a contract takes place when a supervening event occurs without the default of either party and for which the contract makes no sufficient provision.

• This event must so significantly change the nature of the outstanding contractual rights and obligations from what the parties could reasonably have contemplated at the time of the contract's execution that it would be unjust to hold them to its stipulations in the new circumstances.

• In such a case the law declares that both parties be discharged from further performance of the contract. The court has the power to declare the contract at an end.


• While various theories have been expressed to justify the doctrine of frustration, it was now part of the law of contract and like all judicially evolved doctrines it should be flexible and capable of new application.


Neville - Facts

• Developers (D) own plot of land. To develop it need access over plot owned by County Council.

• Negotiations for transfer stumbled on certain points (CC wanted D not to alter a particular exit from a hotel car park) (compensation issues also arose)

• Thus it made D’s task in arranging access a bit more difficult


• It was clear that had the defendant completed its agreements with the county council for the acquisition of the strip of land it would have been in a position to construct the access road and therefore comply with its obligation to give the plaintiff access to the development.

• The only unexpected problem for the defendant was that the county council insisted that the position of the exit from the hotel car park should not be altered.

• This could not be termed a supervening event which significantly changed the nature of the defendant's obligation under the licence agreement.

• While it made the performance of the contract more onerous, it was impossible to say that performance had been frustrated.


If Contract Deals with the Fr Event?

• So, how can you say its frustrating then?

• Brown v Mulligan – Kenny J– If its dealt with in the K – cannot claim Fr if it

happens!– Claimed that contract with Dr was frustrated

by insufficient funds – K itself said could give 3 months notice in such circs…so no Fr


But

• Jackson v Union Marine Insurance (1874)– Ship to proceed with all possible speed from Liverpool to

Newport to pick up cargo to go to San Franciso– K of carriage was to proceed with all possible disptach “dangers

and accidents of navigation excepted”– Ship ran aground, docked for 6 months– Argument was that delay was contemplated by the contact– Question put to JURY – simply whether delay was so long as to

put an end to the commercial sense in the contract– Decision suggests that even if contract deals with frustrating

event, if that event changes the nature of the contract, it can still frustrate.


Metropolitan Water Board v Dick Kerr & Co

• Reservoir to be built in 6 years subject to extension of time for (see para 8-42)

• WW1 occurs – two years into it, they are told to cease by Ministerial Order

• Q was whether the clause operated• Ct held was frustrated• Interruption vitally and fundamentally changed

the conditions of the contract


Self Induced Frustration

• Cannot rely on it• Constantine Line v Imperial Smelting

– Neg of shipowners lead to ship sinking – they could not claim Fr, but the other party could

• Herman v SS Vicia– P were crew on ship going between US and England

– owners did not have proper permits for them – pleaded it Fr the contract of employment

– Their default, they could not plead it


Per Murphy J in Zuphen - FAULT• “Notwithstanding the uncertainty as to its theoretical

basis, the doctrine itself is straightforward. A contract may be discharged on the grounds of frustration when something occurs after the formation of the contract which renders it impossible to fulfil the contract or transforms the obligation to perform into a radically different obligation from that undertaken at the moment of entry into the contract. The doctrine is subject to the limitation that the frustrating circumstances must arise without fault of either party (Maritime National Fish Limited -v- Ocean Trawlers [1935] AC 5 24 and Constantine Lion -v- Imperial Smelting Corporation [1941] 2 All ER 165. “


Effect of Frustration

• All past obs remain intact• Frustration operates from event• Means loss falls where lies on date of

Frustration• Krell v Henry

– Paid £25 upfront, with £50 on the day– Could not get back the 25, but didn’t have to pay the

50


Can be unfair

• If contract is entire – its frustrated, no need to pay even if goods handed over etc.

• Appelby v Myers (1867)– K to install and maintain machines – total sum agreed– Fire destroyed premises and machines– P sought payment for machines and installing– Could not – ob to pay kicked in at future date (when

all obs had been performed)


Restitution May have a Role

• If you could say that the consideration has totally failed, you seek restitution for monies paid out on foot of it (i.e. you gave over monies, and got nothing – you gave over goods, and got nothing)


Fibrosa v Fairbain Lawson Combe Barbour

• K to sell and deliver machines to Poland – 4800, with 1600 payable in advance

• War – fr• Polish Co seeks the money it paid in advance

back – refused – said had carried out work in prepping the machines

• HL held P had obtained no tangible benefit under the K even though D had spent money prepping the machine – P could get $$$ back

© GRIFFITH COLLEGE PROFESSIONAL LAW SCHOOL Discharge of A Contract.

Documents

contract entire

nature of contract

new contract

house slide

entire performance

lump sum building contract

promised benefit slide

performance complete